Automated bill payment
The book The Automatic Millionaire by David Bach suggest some excellent strategies for how to make saving and bill-paying a little less painful every month. The key concepts of the book: Pay yourself first, and make it automatic. Pay yourself first The government and your employer already know that if taxes, health insurance, 401(k) deposits and more aren’t deducted automatically from your paycheck, they may not be paid at all – not over the long run, not reliably. No matter what your situation is from day to day, these programs get their money because they draw it automatically. What you can do is to make your own savings take equal priority with those of these external agencies. If you can automate the deposit of a portion of your paycheck into a separate account every month, you can build up a layer of financial security more quickly than you might believe. The amounts you put away in savings doesn’t have to be large. If you begin by paying yourself five percent of your income, you may find that it's pretty easy to adjust to the change, since it "disappears" before you get your hands on it, the same way taxes and insurance do. If five percent is too hard, reduce the amount withdrawn – down to one percent if you have to – but try to gradually build up to about ten percent. If you get a raise, go out to dinner and celebrate! But afterwards, direct the extra income into savings immediately -- your budget will be the same as what you're used to, and that raise will go towards your most important goals, rather than being squandered. In the face of short-term emergencies and temptations, very few of us have the discipline to give every bill the same priority month after month after month, and our savings are often the first thing to be sacrificed. Automate the savings habit, and you will soon build up a cushion of cash that makes everything else in your financial life easier. Paying bills automatically Making every possible regular transaction automatic reduces anxiety, as well as inconveniences like late fees and increased interest percentages. When all of the responsibilities of "ought to" and "must" are put into a concrete and automatic action plan, a huge weight can be lifted from your shoulders. First, find the best way to split your paycheck automatically between savings and checking accounts, in order to pay yourself first. Talk to your employer about their direct deposit program -- they can often split your net pay into multiple accounts for you. If not, any bank can set up an automatic transfer from your regular account to your savings a day or two after you get paid. If you're wary about automatic payments drawing more than you intend (or can afford), you may want to open a second checking account just for bill-paying. If you only transfer the amount you need to pay your monthly bills into this account, then you are protected from mistakes you or others might make that could drain your cash. This also means you can use the money that's left in your regular checking account without worry or guilt, as all the necessities have already been taken care of. Transactions that can be automated: * Savings and investments: ** Emergency account ** IRAs or Roth IRAs ** Kids’ college accounts ** Vacation or holiday fund * Monthly expenses: ** Mortgage or rent payment ** Car payments ** Utility payments ** Credit card payments ** Auto and life insurance ** Student loan and other loan payments Virtually all investment companies can set up automatic transfers to feed your mutual funds, IRAs or college accounts. Many banks and credit unions provide automated online bill-paying services. You create a list of companies which must be paid, and the bank sends each company an electronic transfer or a paper check on the date you choose. If your bank can't do this, many of the individual companies you pay bills to can also set up an automatic withdrawal from your bank, which works just as well; you'll just need to keep track of more websites, account numbers, and passwords. If you work on commission, you may not be able to automate fixed withdrawals on a regular schedule, but you may still be able to arrange for a percentage of your commission check to be directed to your savings and investments accounts. Also, in this scenario, you can automate everything except the actual money transfer – when money is tight, you choose when and how much to pay, and when it isn't, you can pay everything with one click. Category:Saving